Because they're worth it?
THEY’RE CALLING it the “shareholder spring”, though perhaps the image wrongly conjures up besuited mobs storming barricades at stockholders’ meetings. Apart from a few eggs in Dublin in recent times, it’s all much more sedate, but the rebels did claim a scalp on Wednesday when a 60 per cent vote opposed the directors’ pay package at advertising giant WPP’s meeting in Dublin.
Sir Martin Sorrell’s 56 per cent increase last year (when WPP shares lost 14 per cent in value) was the chief target. He became the third leading executive in a British publicly quoted company – also Aviva and Cain Energy – to lose out to a shareholder rebellion on executive pay this year.
The issue has become a political hot potato in Britain, the EU and US, where demands for government intervention in top pay are rising, as much out of concern for social equity as for shareholder value for money. Hardly surprising when a survey published this week of UK bosses’ pay by Manifest MMK found that between 1998 and 2011, CEO remuneration in the FTSE 100 top companies rose from 46 times to a staggering 138 times average employee earnings.
In the last year, while average earnings in the UK economy rose by 2 per cent, top CEOs received increases of 10 per cent, largely made up of deferred bonuses and long-term awards. The average FSTE 100 CEO now earns £3.7 million. Within the companies themselves and the wider community, such figures make the case for employee pay restraint harder than ever to resist. But CEOs like Sorrell say simply that they get it, like Cheryl Cole, “because we’re worth it”. Look at what our rivals are being paid – the market demands the same for us. But would Sorrell really desert WPP if he were paid one, two or even three million pounds a year less? Shareholders are unconvinced.
British business secretary Vince Cable has promised to empower shareholders by legislating for a requirement for annual votes on remuneration committee recommendations, but has backed down in recent days to make the requirement triennial. Meanwhile in the EU, agreement appears close on legal proposals to limit bankers’ bonuses to the same size as salaries.
In Ireland figures are harder to come by, and the general picture is of significantly lower packages, although bosses are by and large doing significantly better relatively than employees in these hard times. So far, there has been little engagement on the issue by shareholders. But a survey by PwC of 43 Iseq-listed companies recorded in 12 month to June 2011 found that one-third of CEOs received pay increases in that time, averaging 6.5 per cent. Two-thirds received bonuses, while half were also in receipt of long-term incentives such as share options. AIB’s announcement yesterday, albeit as a part of a wider pay curb strategy, that it will cut top executives’ pay by 10 per cent is an acknowledgement that the issue needs addressing.
WPP would do well to heed the non-mandatory resolution passed on Wednesday. Others might be well advised also to take the hint – the revolution is not over.